Nigeria has signed a $3 billion agriculture financing deal with the United States Agency for International Development (USAID) to empower its agricultural sector.

The agreement which was signed at the Central Bank of Nigeria (CBN) headquarters in Abuja by the CBN Governor, Lamido Sanusi, Nigeria’s Minister of Agriculture and Rural Development, Akinwumi Adesina and USAID Administrator, Rajiv Shah; is anchored on the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) project that was introduced to encourage banks to lend to farmers from their balance sheets, rather than just collecting money from the CBN.

The deal will enable the parties to use co-guaranties, joint technical assistance, combined training and workshops for local banks and agriculturally related enterprises and other interventions to encourage the growth of the agriculture sector in Nigeria.

Under the agreement, the US would immediately provide guarantee of up to $100 million in commercial lending to Nigerian banks which will help in increasing private financing to the sector as well as reduce banks’ apathy to agricultural lending.

Speaking at the occasion, USAID’s Shah, said “We are very proud of this partnership agreement because we know that in all of the promise and success that the future holds for Nigeria agriculture; nearly 70 per cent of small scale farmers lack access to financing.”

“Because of this partnership, hundreds of millions of dollars will be made available so that farmers can access and improve their production system and their processing operations.”

He explained that the collaboration was in line with the vision of strengthening Nigerian agricultural sector in order for farmers to access fund and improve production, food processing, storage facilities and to empower retailers to build capacity.

“What United States is coming to do is in line with what the Central bank has put forward, which is to offer credit guarantee and technical assistance to banks. $100 million can be provided at a lower interest rate for Nigerian agricultural farmers. And we believe it is the first step in achieving the minister’s vision of $3 billion additional finance for the agricultural sector for small scale producers.”

“To realise this vision, we provide support to banks and for agriculture to thrive. The support we provide is in the form of technical and credit guarantees to make loan access easier at a low interest rate to farmer,” Shah said.

Commenting on the agreement, Nigeria’s agricultural Minister, Minister of Agriculture, Akinwumi Adesina, said the deal will guarantee some of the issues such as high interest rates, persistent decline in the quantum of lending to the sector and risk of default; which is affecting lending to the sector by banks.

“What this facility is going to do, and I really commend the Central Bank governor, is to reduce the risk of lending by banks. We had a meeting last week with the CBN governor and the managing directors of banks, and they were thrilled at the level of activities in the sector. They were thrilled at the $8bn investment commitment into this sector in one year and they were also thrilled by the fact that of the N3bn that was lent last year to seeds and fertilizer companies, the default rate was zero per cent,” the Minister said.

He added that on this facility: “The central bank will put out risk sharing instruments, which will leverage the excess liquidity from the commercial banks. The total amount that we are looking at is $3 billion overtime.”

Adesina stated that the amount that would be facilitated under the NIRSAL had about four components which are to reduce the risk faced by banks, provide technical assistance to banks, improve the agriculture value chain and provide insurance cover.

“So, its an endorsement of the fact that the central bank and the banking community recognise that there is a revolution on the way in Nigeria in agriculture and they are ready to put significant financing behind it,” he added.

Adesina stated that “In the last one year that we have launched the Agricultural Transformation Agency of the FG, we have significant transformation in this sector. We have been able to attract $8 billion worth of private sector investment into the states. We have done very significant reforms that would enable banks to lend to farmers.

“We launched the growth enhancement scheme last year, where we actually ended four decades of corruption in the sector using mobile phones. We reached 1.2 million farmers and this year we intend to reach five million additional farmers.”

Meanwhile, the CBN Governor, Mallam Sanusi Lamido said the process for the agreement began in 2009 at the peak of the banking sector crisis, adding that the steps so far taken in reforming the sector had started yielding fruits.

Sanusi who was yesterday elected as the Chairman of the Committee of Governors of the West African Monitory Zone (WAMZ) said, “The tentative steps taken last year have started making banks to give credit to this sector without securing losses. We have so far made progress in the agriculture sector.

“Four years ago, the agric sector accounted for less than one per cent of the portfolio of banks; last year, it was four per cent and we had over N300bn already into agriculture but we can do more.”